Five-minute money masterclass: how to tell if your business is struggling

The lean spell could well be the beginning of the end for your enterprise

Five-minute money masterclass: how to tell if your business is struggling

When orders are drying up and new customers are proving hard to come by, a business might be tempted to rely on its old friend faith to see it through the tunnel and out the other side. However, such wishful thinking is a dangerous game. Identifying any signs that your business is struggling at the earliest possible stage – and acting quickly – could be the key to keeping your venture afloat. Needless to say, the first step is pinpointing exactly what these tell-tale signs are.

 Cash shortfall

It seems that any discussion about business survival would be redundant if the word ‘cashflow’ didn’t feature quite prominently. Indeed, regular readers will know that we covered the specific issue of effective cashflow management in depth last month, and for good reason. “At the risk of sounding trite, sales volume is vanity, profit is sanity, but cash is the reality in every business,” says Bob Gorton, managing director of alcoholic spirits company Old St Andrews. “Usually, the first indication a business is getting into trouble is when the cash starts to run out, and the difficulty is that the things causing it were probably going on several months ago. This is what I call the ‘cash death-spiral’. You may not have quite enough cash to pay your suppliers one month, which means your suppliers won’t give you goods. This means you can’t get orders out of the door, which means you can’t get more cash in – and that is very dangerous.”


 Management behaviour

Often, the clues that an enterprise may be going through a sticky patch will be self-evident from the actions or, more pertinently, inaction of senior staff. “Your monthly management team meetings are there for a reason – you are there to discuss what the key issues are, have a debate and then come to a conclusion,” explains Mike Lander, co-founder and executive director of profit and cashflow solutions provider ProfitFlo. “When a problem gets big enough and scary enough, what people often do is talk about everything else but that problem and focus on opportunities, sales and growth.” Nick Montague, founder and CEO of online business funding service, adds: “Are your fellow directors disappearing for too many corporate golf days? Are your colleagues losing focus? At the executive level, the communication and motivation issues are just as prevalent.”

 Sales difficulties 

An ability to sell your product or service is bread and butter for any business. Indeed, before a venture can even start to think about making a profit, it needs to have a fairly sizeable and loyal customer base emptying their wallets into the company’s coffers on a regular basis. If people are no longer convinced by your product, part of it may be that your sales team is not meeting the minimum requirements. “Broadly speaking, if your conversion rate on new business proposals is falling, then there’s something not right,” says Montague. “It could be your proposition – maybe it’s out of date, or your competitors have introduced more attractive products. It could be your sales process overall, low levels of new prospects in your sales funnel, or a lack of direction and leadership in the sales team. But one thing is for sure: if you are not winning enough new business, you need to find out why and address it – quickly.”

 Customers going AWOL

While struggling to attract new business is a sign in itself that something may be not all be roses, the sight of regular clientele deserting you for one of your competitors should aid in transforming your state of denial into stark realisation. “Every business has a number of anchor clients that you started with, or that you have gotten very close to and they are a reasonable size,” explains Lander. “If you start losing a few anchor clients and they are quite reluctant to tell you why, that is a really bad sign.” Meanwhile, founder and CEO of the entrepreneur networking organisation Prelude Group Duncan Cheatle speculates as to the reason this drop-off might occur. “Many businesses probably won’t seek out customer feedback but good businesses will have a mechanism for sounding out existing customers, as well as keeping a very good eye on the new ones,” he says.

 Changes in your payment terms

Should a loyal customer sense you are starting to hit the rails, they may become a bit more liberal with their commitments, safe in the knowledge that you may be willing to compromise if it means getting money in the bank. “Companies treat their clients with reverence; they treat their customers as their most important asset,” comments Louise Beaumont, co-founder and chief sales and marketing officer for invoice trading specialist Platform Black. “This means that you quite often accept things from your customers that aren’t the best possible solution for your company. They might still be placing orders with you but those orders are being placed with more problematic payment terms. So customers are becoming not only your biggest asset, but your biggest risk.”  

Adam Pescod
Adam Pescod

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